Bypassing the US Dollar

On June 1, 2012, China and Japan agreed to establish a direct yen / yuan exchange rate. Prior to this agreement, businesses in both countries were forced to first convert their currencies to U.S. dollars in order to buy either yen or yuan as needed to complete sales transactions between the two countries.

By establishing this currency agreement, exchange risk is reduced as it is no longer necessary to involve a third currency—the US dollar—in each deal. This also lowers costs and could help boost trade between Asia’s two largest economies.

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